Health insurers pinched as economy rebounds

CDPHP had a strong 2011, but its fourth-quarter results may signal tougher times ahead.

The Albany-based health plan had a net loss of $2.8 million for the three months, a swing of $25 million from a year earlier. Executives pointed to an improving economy—which means greater use of medical care—and the competitive pricing CDPHP put into effect last year.

“That impacts your bottom line,” said Robert Hinckley, senior vice president of government and external relations for CDPHP.

CDPHP still managed to have the best 2011 among area insurers. Its full-year surplus of $52.6 million was up from $43.8 million in 2010. Meanwhile, Schenectady-based MVP Health Care saw income decline 18 percent, to $32.7 million. And at HealthNow New York, the Buffalo-based parent of Blue Shield of Northeastern New York in Latham, income dropped from $52 million in 2010 to $4 million last year.

All three are nonprofit, meaning income is added to state-mandated reserves and has no impact on premiums.

But premiums do impact income. Insurers base their pricing on anticipated claims and medical costs, and when those change unexpectedly, the bottom line can suffer.

CDPHP lowered rates on some of its products, and asked for smaller increases than in past years on others, for renewals beginning in the third quarter of 2011. The decision was partly competitive, but tied mainly to lower medical trends, defined as the per member, per month cost of care. The soft economy, coupled with the higher deductibles and co-pays that resulted from employer cost-shifting, prompted people to put off elective treatments. Hinckley said CDPHP’s trends were even lower than the national average, which he attributed to its wellness initiatives.

The smaller premiums helped CDPHP attract more customers—it had 364,275 members at the end of 2011, up from 351,923 a year earlier—and led to a 10 percent increase in revenue.

Medical trends remained under control for the first nine months of 2011. “Then when we got to the fourth quarter,” Hinckley said. “The economy was getting better, people started getting the health care they were putting off, and we had an uptick in medical costs.”

These trends have continued into 2012—along with CDPHP’s lower prices.

Julie Snyder, spokeswoman for HealthNow, said higher-than-anticipated medical costs also led to that company’s drop in income. Revenue was flat at $2.4 billion, but the insurer paid out 91 cents of every dollar for claims. This compares to 89 cents in 2010. That 2 percent difference added up to $48 million.

MVP, which serves upstate New York, Vermont and New Hampshire, was the only insurer that raised rates in 2011 in anticipation of rising costs. It lost 55,000 members, but revenue held at $2.9 billion.

“As best we knew, we properly priced our products,” said Mike Traphagan, spokesman for MVP. “A few years ago we didn’t and we took a hit, and you don’t recover from that.”

Insurers are just now starting the process of determining their 2013 rates, which must be filed with state regulators this summer. They say they are keeping an eye on medical trends, state and federal mandates and provider attempts to shift shortfalls from government programs on to private payers.

“You never know what you’re going to be surprised by,” Traphagan said.